October 26, 2010
The G20 finance ministers’ meeting which took place last weekend in Gyeongju, South Korea, did not do much to ease fears of a potential currency war between developed and developing nations. The only worthwhile achievement was an IMF-brokered decision to increase India, China and Brazil’s clout and voting power on the IMF board. Geithner’s initiative for reducing trade imbalances, squarely aimed at China, fell on deaf ears.
Although the representatives of the countries present at the meeting have agreed to refrain from competitive devaluations of their currencies, the US was incriminated by the German minister for economy as the biggest offender of the group. By infusing the US banking sector with too much liquidity, the Fed has pushed the dollar’s exchange rate downward, forcing other currencies to appreciate instead. The yen is at a 15-year high, whereas the euro is currently trading at 1.40 USD, much to the dismay of Japanese and German exporters. Already, the Fed has announced it would buy back assets worth between 500 and 2,000 billion dollars, which would make matters worse despite Geithner’s G20 declaration that he favours a strong US dollar.
According to the G20’s official site, the organisation appeared in 1999 in the wake of the Asian financial crisis. Its members, which belong to the developed as well as to the developing world, have conflicting interests, however. This reduces the effectiveness of the G20 to that of a mere dialogue forum, as major policy decisions relevant to the global economy seem to be outside its reach. A case in point – the decision to re-allocate seats and voting powers India’s and China’s way. Thus, the deal has been reached by the representatives of the G7 and those of the BRIC group through direct negotiations. (sources: Deutsche Welle, Reuters, Le Monde, G20 website)Florian Pantazi